OPEC says it can meet any shortage and US announces it has large reserves for any shortfall, writes Conor O'Clery, International Business Editor, on Wall Street.
The price of oil jumped 4 per cent on world markets yesterday after Iraq's president, Mr Saddam Hussein, announced an immediate halt in Iraqi oil exports to last for 30 days or as long as Israeli forces remained in Palestinian territories. Mr Hussein also called for other Arab countries to take similar action.
Libya said yesterday that it would support the Iraqi call and Iran's supreme leader, Ayatollah Ali Khamenei, joined in an appeal to Islamic countries to stop supplying oil for one month to countries with close relations with Israel.
The initiative by Iraq, which exports about two million barrels a day into the world market of 75 million barrels, is not expected to affect world supplies but is certain to drive the price even higher, with negative consequences on the economic recovery in the United States and Europe.
The euro zone may be more vulnerable to oil price rises, according to analysts who say that oil prices will determine whether the EU meets its economic targets this year.
Rising energy costs threaten to undermine consumer and investor confidence and spark inflation and higher interest rates.
The price of crude oil has already jumped by 50 per cent on world markets since January.
The Organisation of Petroleum Exporting Countries (OPEC) said it could meet any crude supply shortage from Iraq's decision and the US has announced that it has large reserves to cope with any shortfall.
Brent crude-oil futures climbed $1.01 to $27 (€30.85) in midday trading in London, and the price could soar further if other Arab countries joined in to put pressure on Israel.
Prospects of higher energy costs hit global equities, as traders feared damage to the world economic recovery.
Demonstrators in several Arab capitals have taken to the streets to urge their governments to impose an oil embargo to put pressure on US policy to Israel.
However, Saudi Foreign Minister Mr Saud al-Faisal said last week there was no question of other Arab states withholding oil exports to pressurise the US to resolve the Middle East crisis. He said Arab countries depended on oil exports for their development. In November 2000, Saudi Arabia led the adoption of a pledge by OPEC states and other major exporters that oil would not be used as a political weapon. Kuwait, another major producer, has also rejected boycott calls.
OPEC Secretary-General Mr Ali Rodriguez said yesterday he would consult with cartel oil ministers today and that the group could hold an emergency meeting to decide policy.
The Arab-dominated cartel controls two-thirds of world oil exports and could easily replace lost Iraqi barrels after cutting five million barrels of daily production since January last year.
Mr Hussein announced on television that Iraq's leaders met yesterday and decided "to stop exporting oil totally as of this afternoon through the pipelines flowing to the Turkish ports and the south for 30 days" unless Israel withdrew earlier.
If Israel had not withdrawn within 30 days, Iraq would consider what further action to take, he said.
"The Iraqi decision will certainly have an immediate impact on the prices, given the volatile situation in the Middle East and recent oil disruption in Venezuela," according to Mr Walid Khadouri, editor in chief of the Middle East Economic Survey. "But it is not expected to impact the supplies in the world market. Other OPEC exporters and the huge strategic and commercial reserves in industrialised nations can augment that."
Iraq's trade is subject to UN sanctions but it is permitted to sell unlimited amounts of oil to buy food, medicine and other humanitarian supplies.
